Mutual Fund and Hedge Fund Chiefs Clash over Regulation

Ackermann, Matt, American Banker

The new president of the Investment Company Institute told a press luncheon in New York Monday that hedge funds should be subject to as much regulatory scrutiny as mutual funds have drawn in the wake of trading scandals, but the head of a hedge fund group calls this "a diversionary tactic."

"Certain hedge funds with unregistered advisers have been the fox in our hen house," said Paul Schott Stevens, president of the Washington-based mutual fund trade group. "I want to keep our hens safe." The ICI supports proposals before the Securities and Exchange Commission to regulate the hedge fund industry, which has been relatively free of such oversight.

"It is a concern to me that the implications against hedge funds in these scandals have been overlooked," Mr. Stevens said.

John G. Gaine, the president of the Managed Funds Association, which is the primary trade association for alternative investment strategies, including hedge funds, funds of funds, and managed futures funds, said Mr. Stevens' remarks disappointed him.

The battle lines between mutual funds and hedge funds have been drawn for a long time, Mr. Gaine said. The competitive rivalry between the two investment products is healthy, he said, but the ICI is out of place in urging regulation of the hedge fund industry.

"I am not pointing a finger," he said. "I am trying to be objective. For the ICI to say that hedge funds are partially responsible for these problems is a diversionary tactic. They should take the time to look into their own membership instead of looking beyond that."

Mr. Stevens said the fund scandal has implications throughout the investment industry. "This is a mutual fund scandal -- no one is trying to evade that -- but it is a scandal that also impacts intermediaries and hedge funds," he said. "It has to be addressed in those respects."

Since taking the helm at the ICI this month, Mr. Stevens has been vocal about the close scrutiny he says hedge funds should get in the wake of the trading investigations that have shaken the $7.6 trillion mutual fund industry.

During a National Press Club speech on June 15, his first public remarks since becoming ICI president, Mr. Stevens blamed hedge funds for using market-timing strategies "to pick the pockets of long-term mutual fund investors." Hedge fund advisers practiced market timing by "stealth and deceit, in ways designed to frustrate the ability of mutual funds to detect and prevent it," he said. …

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